Buy Granules India; tgt of Rs 129: Networth Stock Broking

Networth Stock Broking is bullish on Granules India and has recommended buy rating on the stock with a target of Rs 129 in its April 27, 2012 research report.

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Buy Granules India; tgt of Rs 129: Networth Stock Broking

Networth Stock Broking is bullish on Granules India and has recommended buy rating on the stock with a target of Rs 129 in its April 27, 2012 research report.

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Networth Stock Broking is bullish on Granules India and has recommended buy rating on the stock with a target of Rs 129 in its April 27, 2012 research report.

"Granules India (GIL), integral relationships with current allies and robust offerings for novel clients have boded well for GIL in the form of fresh contracts and renewals. Strong execution capabilities backed by significant capacity expansions will transcend into robust growth across FD, PFI and API divisions. Revenue of Rs 6.54bn in FY12 implies growth of 37.6% YoY and CAGR of 32.2% over FY08-12. We expect GIL to deliver strong revenue CAGR of 21% to Rs 9.57bn over FY12-14E."

"Several factors like rising input cost (63.4% of sales in FY12 V/s 62.2% in FY11) and high tax-rate (30.3% in FY12 v/s 21.9% in FY11) have restricted margin expansion. However, we believe that improving operational efficiency and increasing utilizations would result in operating margins expanding by 260bps to 14.6% and the net margins augmenting by 130bps to 5.9% by FY14E."

"Strategic management thrust upon building a robust order book, achieving operational excellence and maintaining strong reputation across global markets will generate buoyant return ratios and profitability growth. We expect RoE to increase by 530bps to 18.2% and RoCE to increase by 620bps to 20.2% by FY14E. APAT of Rs 299.5mn in FY12 implies growth of 43.3% YoY and CAGR of 35% over FY08-12. We believe that GIL will exhibit buoyant APAT CAGR of 37.1% to Rs 563.1mn over FY12-14E."

"Firming up of the input cost (i.e. pressure upon Gross margins) and discontinuation of EOU credits (i.e. higher tax rate going ahead) would be critical challenges going ahead. However, robust orders being executed upon augmented capacities, resolved focus upon improving operational excellence bolstered by increasing utilizations will assure sustainable revenue growth along with margin expansion over the next couple of years."

"The stock currently trades at 3.8x its FY14E earnings. At CMP of Rs 99, we maintain our "Buy" recommendation, with a revised target price of Rs 129 (5x FY14E EPS), implying an upside of 31%," says Networth Stock Broking research report.

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